Kalshi—the world’s largest prediction marketplace that allows users to trade contracts on the outcomes of real-world events—increased its annualized trading volume from $300 million to $40–50 billion since August 2025, according to a December 17, 2025 research report by Foresight Ventures. Despite several adverse legal rulings in recent months, Kalshi continues to grow exponentially. Trading volumes on Kalshi reached $2.3 billion for the week ending December 21, and the company surpassed 27.6 million trading transactions processed in the month of December.

The surge in year-end trading volume on Kalshi is primarily due to sporting event contracts, with the College Football Playoffs and the NFL playoffs coming into focus. It’s been reported that sports wagers on football-related events accounted for 90% of Kalshi’s trading volume in December.

The prediction markets’ growing footprint in the professional sports ecosystem was further highlighted in October when the NHL became the first of the major North American sports leagues to embrace prediction markets, entering partnerships with market leaders Polymarket and Kalshi. The Wall Street Journal notes that this licensing agreement with the NHL has the potential to be a significant disruptive force upon the traditional sportsbook industry. Kalshi went a step further when it reached a marketing deal with the NHL’s Chicago Blackhawks in December, the first major North American sports team tie-up with a prediction-market platform. 

Analysts also point to other drivers for Kalshi’s tremendous growth, highlighting recent strategic partnerships in the cryptocurrency sphere. For example, in mid-December, Kalshi integrated with the TRON network, “bridging traditional finance with blockchain infrastructure.” This built upon an earlier announcement that Kalshi will make “its event trading available directly inside Phantom, one of the most widely used crypto wallets.” And analysts continue to report that Kalshi will be the in-house prediction market for the giant crypto platform Coinbase.

States that have challenged Kalshi in litigation argue that “sports event contracts” on prediction markets are simply another form of sports wagering that legally falls under their regulatory authority. Kalshi counters this view, declaring it is exempt from state regulatory authorities because it is not a gambling platform, but a federally regulated financial exchange. Consistent with its legal theory, “event contracts” (including sports-related activity) conducted on Kalshi’s exchange are “swaps,” a legal form of derivative contract, rather than bets. Kalshi maintains that because swaps are already regulated by federal financial regulators—the Commodity Futures Trading Commission—and are thus properly conducted on financial exchanges, state gaming authorities have no say in their activities. Kalshi is appealing recent rulings in Nevada and Maryland challenging its activities within their borders. Siding with the view of Nevada and Maryland regulators, plaintiffs have recently filed a class-action lawsuit against Kalshi, accusing the company of “running an illegal gambling operation.” Experts following gaming and prediction markets anticipate more litigation from other states and from tribal authorities in the coming months, a signal that Kalshi’s legal battles will accelerate in 2026.

Ian Epstein, founder of the sports marketplace PropSwap, believes that Kalshi will comfortably weather this storm. Epstein told the NLR that he compares the rise of prediction markets in sports betting to the daily fantasy sports craze that emerged in the early 2000s. Epstein is confident that despite significant regulatory pushback, prediction markets are “here to stay.” Gary Chodes, the CEO of The National Law Review, concurs with Epstein’s sentiment and forecasts that “some of the biggest regulatory battles in 2026 will revolve around efforts by states and municipalities to concoct new methods to tax sports betting activity taking place on major prediction markets such as Kalshi and Polymarket.”

Traditional sports betting platforms have been in the tax collectors’ crosshairs in recent years as their coffers have swelled. According to data from the US Census Bureau and the Tax Foundation, over the last four years, state sales tax revenue from sports betting has soared 382%, from $190 million in the third quarter of 2021 to $917 million in the second quarter of 2025.

States are constantly pushing the envelope, and, in some cases, the tax rates being imposed are approaching levels that could significantly erode the economic model that has made online sports book operators so profitable in recent years. Illinois provides a classic case study of this phenomenon.

During 2025, Illinois imposed a graduated tax rate (ranging from 20% to 40%) by amending its existing Sports Wagering Act on sports betting operators’ revenue that increases as operators attain successively higher revenue thresholds. Not satisfied with the status quo, the Illinois legislature added an additional tax revenue tool that went into effect on July 1, 2025, becoming the first state to impose a “per wager” tax as well. This brand-new “per wager” tax could bring the combined tax burden on Illinois operators close to 50% for larger players. Moreover, Cook County (in which Chicago sits) levies a 2% surcharge tax on Illinois sports wagering taking place within the County limits that is collected by the State on its behalf.

Incredibly, piling on top of that tax burden, the City of Chicago itself is now attempting to further squeeze major online sports betting operators by layering on a “hastily enacted”—and economically harmful—supplemental licensing requirement, as well as an additional 10.25% tax on sports betting revenue generated within the city. The major traditional sports book players are fighting back hard, as the Sports Betting Alliance (SBA)—which includes as members DraftKings, FanDuel, Fanatics, bet365, and BetMGM—sued the city of Chicago on December 30, 2025 over the contentious new ordinance. The Complaint states that the Chicago city licensing and tax regime put forth in late December is barred by the Illinois Constitution and thus unenforceable.

According to Chodes, “there is a virtually insatiable appetite on the part of many state and local lawmakers to tax sports gaming in order to help plug budget shortfalls.” In addition to the tax feeding frenzy taking place in Illinois, he points to how the District of Columbia began taxing online sports betting in 2020 with a blanket 10% tax rate, and moved that up to 30% for certain categories of online gaming platforms in August of 2024. On the high end of the scale as of year-end 2025, New Hampshire, New York, and Rhode Island levied taxes upon online sports betting taking place within their jurisdictions at an eye-popping 51% tax rate, according to the National Conference of State Legislatures.

Although to date the focus by revenue-hungry lawmakers has been on taxing traditional online sports betting platforms, such as DraftKings and FanDuel, Chodes believes it would be “naïve to think that creative tax initiatives and licensing regimes won’t emerge in 2026 focused on squeezing tax revenue out of the prediction market players as well. This is particularly likely given the surge in volume of late at Kalshi.” Alluding to the SBA lawsuit just lodged against the City of Chicago, Chodes quips that “the new year is starting off with fireworks.”

It’s clear that prediction markets have captured the imagination of the public and are now part of a larger cultural landscape, which includes media and the broader financial world. Two leading media organizations—CNN and MSNBC—have announced partnerships with Kalshi. It has even been reported that CNN plans to introduce a live Kalshi-powered ticker that will roll across the bottom of viewers' screens. While regulators will want their say on how prediction markets operate and how they are taxed, there’s no question that they are “here to stay.”

Regardless of the uncertain short-term legal outlook for prediction markets and sports betting, one thing is clear: prediction markets are a growing force. Kalshi’s explosive growth in 2025, establishing a new industry milestone for weekly trading volumes by a prediction market operator of $2 billion, demonstrates the rising influence of the industry. Chodes makes his own 2026 prediction: “Market leaders, like Kalshi and Polymarket, are on a trajectory toward enormous scale. As we learned from the early days of blockchain, cryptocurrency, and even self-driving vehicles, regulatory uncertainty rarely halts the expansion of new industries that are driven by strong fundamentals, such as robust market demand, public enthusiasm, extensive media coverage, and true technological innovation. Recent months of record trading activity on prediction markets demonstrate to me that the underlying fundamentals supporting them are strong enough such that early innovators, like Kalshi and Polymarket, will survive virtually any future regulatory challenges.”